Brewers warn of higher prices
Federal excise tax increase of 4.7 per cent may also lead to job cuts, industry says
The largest hike in the federal excise tax on alcohol in four decades is prompting calls from brewers and business organizations for a broader review of the way the industry is taxed.
Craft and independent brewers warn the annually adjusted tax, scheduled to increase by 4.7 per cent on April 1, could lead to price hikes and industry job cuts.
“With Canada fighting to reduce inflation to two per cent, it seems way off-base to look at a 4.7 per cent increase at this point in time,” said Ian Gourlay, who coowns Walkerville Brewery with Mike Brkovich.
“There's also a wider issue here. The federal tax is a one-size-fits-all process for the industry.
“There's a big difference between large international brewers, and craft and independent brewers. We need to take a look at the taxation system for the industry as a whole to see what can be done to help take some of the pressure off smaller brewers.”
According to Beer Canada, which represents 90 per cent of the nation's licensed brewers, the federal excise tax has risen nearly 20 per cent since 2017 when it became tied to the consumer price index. The tax is volume-based and paid at the time of production.
Walkerville Brewery is the largest local craft brewery, employing 20 people. There were 1,200 craft brewers in Canada at the beginning of 2023, but that number is shrinking fast, according to Gourlay.
“About 10 to 12 per cent of those brewers closed in the past 12 months,” Gourlay said. “It's tough in the industry right now and any cost increases, on top of the inflation for grains, malts, hops and labour, isn't helping.
“Craft and independent brewers are embedded in their communities. We make up 17 per cent of the industry, but account for 60 per cent of the jobs.”
Gourlay said craft and independent brewers don't have the economies of scale to continuously absorb the cost increases they've been experiencing. And neither the brewery nor the hospitality sector it services has returned to pre-pandemic levels of business, he added.
Between rising prices for materials, labour and taxes, Beer Canada estimates costs will rise five to seven per cent for brewers this year.
“The federal tax increase will be just one of the factors that goes into our decision on pricing,” Gourlay said.
“We haven't made those decisions yet. There's only so far you can go on pricing.”
Beer Canada president CJ Hélie said combined federal and provincial taxes account for 46 per cent of the cost of a beer.
Ontario's Progressive Conservatives froze the province's escalator tax on alcohol in 2018. On Friday, the Ford government announced it was halting the estimated 4.6 per cent increase to the beer basic tax and LCBO mark-up rates that were scheduled for March 1. The latest freeze is for two years, until March 1, 2026.
Hélie told the Windsor Star he expects to hear a decision from Ottawa on the federal tax rate before the end of March.
“Canada already has the highest beer taxes of any country in the G7,” Hélie said.
“Not including the current fiscal year for the government, which ends March 31, government taxes on wine, spirits and beer have increased $500 million (since 2017).”
Beer Canada has been lobbying the government to cap the tax increase at two per cent or freeze it at current levels. The organization supports having Parliament make any changes to the tax rate each year over the current system.
Windsor-essex Regional Chamber of Commerce CEO Rakesh Naidu said its national and provincial bodies also support a freeze or cap this year and the eventual elimination of the tax.
“A 4.7 per cent increase is detrimental to all businesses,” Naidu said.
“We feel this year the government should cap the tax and eliminate or phase it out completely. The tax creates too much unpredictability for business (for longer range planning).”
Last year, the federal excise tax on alcohol was set to rise 6.3 per cent, but a successful lobbying effort by industry and business saw Ottawa capping the 2023 increase at two per cent.
Naidu said the chamber is also in favour of the province eliminating the 35 per cent import duty levied on local grape growers and wineries even though their product is made domestically. The chamber also would like to see the elimination of the 6.1 per cent sales tax on wine sold by a winery itself.
In 2023, beer volume sales declined 4.5 per cent and they're down 6.5 per cent since 2019.
“The 4.7 per cent increase is around $33 million in new taxes and that will have to be found someplace,” Hélie said. “The easiest place to look is head count.”
The brewing industry directly employs 21,000 people in Canada, with 7,400 of those workers being employed by Ontario's 380 licensed breweries.